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JERUSALEM - Israel’s Parliament approved a contentious law against boycotts targeting Israeli settlements in the West Bank yesterday, dismissing charges that the measure is antidemocratic and could harm Israel’s image.

The new law allows settlers or settlement-based businesses to sue Israelis who promote boycotts of settlements.

The fierce debate reflected growing polarization between Israelis who favor expanding settlements and keeping the West Bank in Israeli hands, and those who believe Israel must withdraw from much of the territory and dismantle some or all of the settlements in exchange for peace with the Palestinians. Palestinians consider the settlements illegal encroachment on land they claim for a state, a view backed by much of the world.

The law allows courts to determine whether a boycott call caused direct damage to a person or a business in a settlement and assess damages.

The law is one of a string of initiatives by hawkish Israelis to limit activities they consider anti-Israel. For example, they have tried to retaliate against Israeli artists who refused to perform in settlements.

Backers of the law insisted it was necessary to protect Israelis living in the West Bank. Sponsor Zeev Elkin, from Netanyahu’s Likud Party, said it was unfair to target Israelis who live in settlements. Some 300,000 Israelis live in West Bank settlements.

“The place where a person lives cannot be a reason to harm him,’’ Elkin told Parliament. “The struggle over the boundaries of the state must be carried out here and not through boycotts.’’

Opponents charged the law is an undemocratic attempt to curtail free speech. They predicted that Israel’s Supreme Court would overturn the law, an unusual step in Israel.

Also yesterday, a senior Palestinian official said the Palestinians are still weighing details of their bid to seek UN recognition of a Palestinian state in the West Bank, Gaza, and East Jerusalem in September.

The Palestinians have not decided whether to apply to the UN General Assembly or the Security Council first, according to a “work plan’’ obtained by the Associated Press yesterday. The paper, prepared by negotiator Saeb Erekat, lays out the options for gaining recognition of a state.